DESIGN DEVELOPMENT

Charles Driver, Owner
(209) 712-8103 Ca Lic#588147

Rehabilitation 203k

Let Us Be Your 203k Contractor...

You may find the home of your dreams in the Central Valley or the Sacramento area, but the home may be in need of some work. With an FHA 203k Loan Mortgage, you will have one loan which includes the mortgage and the cost of repairs combined!

The 203k Loan amount is based on the projected value of the property after the work is completed, taking into account the cost of the work.  The advantage of this 203k loan is that you can buy a home that needs a lot of work, or even minor improvements, and you still have only one payment, which combines the mortgage and cost of the building repairs.

Obtaining a 203k Loan Mortgage will allow you to:
  • Create the home of your dreams and add value to your investment
  • Borrow the money for repairs in the same mortgage loan
  • Complete the reconstruction after you close on your home
  • You don't have to refinance once reconstruction is complete
  • 203k Loan offer a low fixed rate, unlike construction loans
The Advantages of a 203k Loan:
  • Quality with as little as 3.5% down
  • Cash needed for the repairs is built into the loan amount
  • Loan amount is based on the "As-improved" value of your home
 Eligible Home Improvements

The 203k loan covers a range of home improvements.  These include, but are not limited to, the following:
  • Bathroom Remodeling
  • Kitchen Remodeling
  • Replacing a Roof, Gutters, and Downspouts
  • Room Additions
  • Adding a Bathroom
  • Flooring Replacement
  • Finish Basement
  • Attic Conversion
  • Build A Dormer
  • Upgrading plumbing, electrical wiring, heating and air conditioning
  • Adding or repairing siding or painting   

 

            203k Loan Information 

*  203k loans allow you to FINANCE the cost of the repairs in the new loan amount. (Not to exceed 110% of the after improved value determined by the appraiser and 203k consultant) What does this mean?  I buy a house for 200,000 that needs 50,000 in repairs and I can borrow the extra 50,000?  Too good to be true?  NOPE.  That's it in a nutshell....

ok details please.........

*  Down payment is based on the sale price PLUS the final cost of the repairs x 3.5% so for example:

Sale price is 200,000 (DO not calculate 3.5% on this)  PLUS 50,000 in repairs/costs (which includes certain costs and reserves the lender will require) 250,000 x 3.5%.  Down payment is $8750.00 (closing costs are separate as usual)

* Buyer will hire (lender can recommend) a HUD approved FHA 203k Consultant  to go to the property with the buyer to determine the required repairs and wish list repairs.

 The fee charged by the consultant can be included in the mortgage.  The fee can range anywhere between $400 to $1200 depending on the repairs required.  Please check with the consultant prior to scheduling your appointment.

*Buyer will obtain estimates from several licensed contractors for the work to be completed depending on how extensive the repairs.

Three estimates are recommended for each contractor but not necessary.  The buyer can act as their own general contractor only if experienced and licensed.  (FHA says experienced, but most investors require the buyer to be licensed)  The contractors must provide documentation to be approved by the lender prior to approval.

The consultant will determine the "required" repairs versus the "wish list repairs".  You must start with the required repairs and then move on from there for you wish list. This is an important step for the consultant and appraiser so that you don't over improve the home and exceed the comparable properties in the area.

Eligible Repairs

  1. Structural alterations and additions
  2. Garage (attached /detached/new)
  3. Remodel kitchen or bathroom
  4. Install appliances
  5. Changes to eliminate deterioration and reduce maintenance
  6. Repair swimming pool (up to $1500)
  7. Modernize plumbing/heating/air conditioning/electrical systems
  8. Install or repair roofing /gutters/downspout
  9. Install flooring /title /carpet
  10. Energy conversation improvements
  11. Major landscaping /decks/fencing
  12. Improvements for accessibility ( e.g. handicapped ramp)
  13. Interior and exterior painting
  14. Improvements that are a permanent part of the real estate

Ineligible Repairs

  1. New Tennis court
  2. Gazebo or bathhouse
  3. Additions or alterations to provide for commercial use
  4. Photo mural
  5. Television antenna or satellite dish
  6. New Swimming pool
  7. Outdoor fireplace/hearth/barbecue pit  (Sorry to those of you in California! Sob)

* Once the consultant completes his report of required and wish list repairs, the lender will forward it to the appraiser for an "After Improved Value".  This is where you may run into problems with OVER improving the property based on current values.  Between the consultant, appraiser and buyer - the FINAL FINAL report will be tweaked to come up with a final report that the contractors will be hired to do.

* So now the file is submitted to underwriting and approved ( you need to qualify at the full amount you are borrowing of course, which may include your current mortgage payment for the home you will live in during the rehab period) and the normal steps for closing will occur.

(BIG PLUS - you can include 6 months of mortgage payments in the new loan amount since it's assumed that you will have TWO housing payments during the rehabilitation of the new home.  This money will be deducted each month during the rehab process) This is optional.

* Closing occurs, and the work begins within 30 days of closing/funding. (This is when your mortgage payments start since this is when you started borrowing the money - however, if you included the 6 mths mtg payments, they will be deducted from escrow starting when your first payment is due)

* Disbursments are made throughout the following 6 months from the escrow account (normally 4 draws with one final inspection, but  this can be increased for higher repair amounts) as the work is completed.

Remember you paid the seller for the price of the home, and then you borrowed an additional amount of X which is sitting in an escrow account to pay the contractors (your total loan is the total amount you borrowed)

Once the last disbursement is made and the final inspection showing COMPLETED AS PER THE CONTRACT........you are done! Simple As 1 2 3  - okay maybe not, but that's why having an experienced Contractor on your side is crucial!

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